Innovation - in association with the Carbon Trust

Clean tech in stormy times

Low-carbon technology promised to curb climate change and create a new, lucrative industry. Justin Mullins asks if it is living up to expectations in today’s tough economic conditions

It would be easy to paint a grim picture. The world is gripped by economic crises and the threat of a global recession looms like an angry cloud. With even the most mature industries finding conditions tough, nobody would be surprised if the clean technology industry, one of the UK’s newest and fastest growing sectors, were suffering. Clean tech investors talk of a dramatic drop in confidence, companies complain that they cannot raise investment, while business leaders see a stubborn resistance to change.

Yet there are reasons to be optimistic. The clean tech industry is innovative and has the backing of the UK government, which has been one of the world’s biggest investors in clean tech in the past decade, helping to seed commercial interest in the sector. In many areas, this is beginning to pay off. Could the UK’s clean tech industry buck the trend and emerge stronger from the economic crisis?

The environmental rationale for the drive for clean tech is clear. For too long we have been pumping too much carbon dioxide and other greenhouse gases into the atmosphere. As a result, our planet is warming faster and the message from climate scientists is clear: if we want to avoid potentially dangerous climate change we must cut emissions of carbon dioxide.

There is no shortage of ideas about how to do this. Our homes, businesses and transport systems consume prodigious amounts of energy, so there are plenty of efficiencies to be had from fixes, such as loft insulation or factories re-using heat they used to vent to the atmosphere. At the other end of the scale are the machines that replace fossil-fuel-burning power plants by generating electricity from renewable sources: the sun, wind and sea. This is a challenge on a grand scale requiring a powerful vision, political will and years of research and development.

One company makes LED lamps that clip straight onto cables. There's no need to cut the insulation

None of this is possible without plenty of investment. After the dot-com bubble burst in 2003, investors began to look for new places to put their money. Many governments signalled their intentions to cut national carbon emissions. In the minds of investors, this established a solid commitment to clean technology.

Across Europe investment began to flow into everything from photovoltaic cells and wind turbines to energy-efficient devices of all types and carbon capture technologies. From 2003, the clean tech industry boomed.

Then came 2008 and the collapse of the US investment bank Lehman Brothers, which triggered the credit crunch and global economic crisis. Investors battened down the hatches and the clean tech industry suffered more than most. “Whenever investors take fright, they tend to shun young, capital-hungry industries such as clean energy, penalising them more dramatically than more mature, cash-flow generating companies,” says Michael Liebreich, chief executive of New York-based Bloomberg New Energy Finance, which specialises in analysing the clean energy and carbon markets.

In 2009, private and public sources in the UK invested £7 billion in low-carbon technologies, but in 2010 that dropped to £2 billion, according to a report by the Pew Environment Group, a non-profit clean energy policy group based in Washington DC.

Such cuts made it significantly harder for start-ups with new ideas to raise money. “It’s a difficult environment for any start-up,” says Benj Sykes, Director of Innovation at the Carbon Trust, a not-for-profit company set up in 2001 to accelerate the move to a low-carbon economy.

Confidence in clean technology took another knock in November with the government’s surprise decision to halve the feed-in tariff paid to householders with solar panels who sell electricity back to the grid. The tariff had turned the market for domestic installation of photovoltaics into a spectacular growth area.

Many agree that change was needed to control that growth. But the short notice given for the change unnerved investors who cannot be sure that the government won’t spring other surprises. “That’s created a lot of nervousness,” says Adam Workman of CT Investment Partners, which advises Carbon Trust Investments, the venture capital arm of the Carbon Trust.

Against this background, the clean tech industry is not just holding out, in some ways it is flourishing. One reason is that the principal economic force driving interest in clean tech is as strong as ever. “The price of oil is still well above $100 per barrel and that’s during a global downturn,” says Workman. As economies pick up and demand for energy rises, that price will only increase.

The UK government has invested heavily in renewable energy, particularly offshore wind power. This should be generating some 18 gigawatts of power by 2020 and along the way has lead to a stream of innovations that are reducing costs.

We're still seeing growth across the clean tech sector despite the pressure from the economy

For example, in a bid to cut maintenance and improve reliability, Scottish company Artemis Intelligent Power invented a smart hydraulic transmission to replace the gearboxes in wind turbines. Last year the company was bought by the Japanese giant Mitsubishi, which is now planning to build a turbine manufacturing plant in the UK.

In the broader economy, technologies that save energy or carbon emissions present real opportunities too. Developing, selling and using them at home and abroad can boost company profits. “Businesses are picking low-carbon technologies because they make good commercial sense,” says David Clarke, chief executive of the Energy Technologies Institute, a partnership between the UK government and companies such as Shell, EDF and Rolls Royce, that invests in large-scale, clean energy projects.

Many small companies that have products to sell are doing well. Bristol-based company ModCell, for example, is using straw bales and hemp to make large prefabricated, insulated walls for low-carbon buildings. Rather than emit carbon as many construction materials do, these panels sequester carbon and are starting to be used on a large scale in building projects.

Juice Technology in Hertfordshire designs lighting systems based on light-emitting diodes which consume half the power of compact fluorescent lamps, have a longer lifetime and give a bright white light. The firm makes dimmable LEDs and lamps that work by induction - they simply clip onto a cable without the need to cut the insulation - which dramatically reduces installation and maintenance costs.

It is true that some venture capital firms, such as Carbon Trust Investments, have shut their doors to new investments for now. But others, including the £20 million fund of the North West Fund For Energy and Environment, which is managed by CT Investment Partners, are still seeking opportunities. “We’re looking at a range of businesses and hoping to back between three and five companies this year,” says Workman.

“I’m seeing plenty of clean tech start-ups,” says Richard Miller, head of sustainability at the Technology Strategy Board, the UK government’s national innovation agency. Since 2007 it has invested £1 billion in some 2000 early-stage projects. Miller says about two-thirds of these fall into a broad definition of clean technology. Clarke agrees that the industry is weathering the storm. “We’re still seeing growth across the sector, despite the pressure from the economy,” he says.

The UK government agrees. Chris Huhne, Secretary of State for Energy and Climate Change, says that past investments are starting to pay off. In October, he told the UK renewable energy industry conference that the low-carbon sector grew by 4.3 per cent in the financial year to April 2011, creating nearly 4500 new jobs in the process. Britain, he says, is well placed to encourage investments from all over the world.

With the rest of the economy looking increasingly vulnerable to recession, the immediate future of the clean tech industry is finely balanced. On the one hand, the gloomy outlook could stifle clean tech innovation. On the other, innovative low-carbon technologies could provide a competitive edge to stimulate a virtuous circle of investment and innovation. If that happens, the industry will emerge strongly from the downturn. But that’s a big “if”. “In these kinds of conditions,” says Clarke, “you’ve just got to hold your nerve.”

Justin Mullins is a consultant for New Scientist

Flying a kite... under water

Even in a light breeze, a kite can travel surprisingly fast. Minesto is a 5-year-old start-up that is exploiting this effect under water to generate electricity from tidal currents.

The company’s idea is to tether “underwater kites” to the sea floor. When the tidal stream starts to flow, they take off and “fly” like an airborne kite; a rudder keeps it moving in a constant figure of eight. Each carries a turbine that converts its movement through the water into electricity. Because it can travel as much as 10 times as fast as the tidal flow, each kite can generate between 150 and 800 kilowatts.

Minesto’s unique selling point is that it can produce power in flows of just 0.7 metres per second. By contrast, many tidal generators need flows of a least 4.5 metres per second. The significance of this technology is that it could allow energy generation in vast swathes of ocean with relatively slow tidal flow, which means it has
a huge potential global marketplace.

The biggest challenge for the company has been attracting investment, says managing director Anders Jansson. Venture capitalists generally expect a return on their investment within five years but developing a technology for generating electricity takes about 10 years. “So finding an investor willing to take this on was a challenge,” says Jansson.

In 2007, Minesto secured £300,000 from the Saab Group, a Swedish defence technology company, to study the commercial viability of its technology. Then the Carbon Trust accepted it into a programme for accelerating marine energy technologies. “This had a significant impact – it gave investors confidence in us,” says Jansson. This allowed the company to secure another £500,000 to build a proof-of-principle power plant.

In 2009, just as the global financial crisis hit home, the company was expecting to secure a £4 million investment. Two days before the deal was due to be signed, the backer pulled out. “That was a big shock,” says Jansson. “It took
us another year to get that funding back.”

With this backing and more from the Carbon Trust, Minesto has built a one-tenth scale prototype that is being tested in Strangford Lough, Northern Ireland. Jansson says the trials have validated much of its technology and
it is negotiating with customers to build a commercial power plant to start selling electricity on the commercial market.

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Ideas that made a real difference

There's a team that is making business sense of cutting carbon

When you take a shower, much of the water is just a propellant: it simply splashes off your body. This surplus water and the energy needed to heat it is simply squandered.

Chris Honeyands set out to improve things. He designed a shower head that combines high-pressure air with hot water and found he could create an invigorating shower with less than half the normal amounts of water and energy.

Then he contacted the Carbon Trust.

The idea looked so good the Trust funded a prototype and “incubated” Honeyands’s company, Kelda Showers, putting it on a sound business footing. They also hooked him up with a major shower maker with international links that is now investing in his company.

The Carbon Trust is a not-for-profit company whose aim is to accelerate the move to a low-carbon world. “We are all about getting great low-carbon technologies developed and onto the market,” says Benj Sykes, director of innovation at the Carbon Trust.

For small companies with innovative ideas, the Trust awards research and development grants and delivers support on everything from patenting and market opportunities to creating business plans.

It is also increasingly helping large companies by putting them in touch with start-ups. “There is a huge cultural difference between large multinationals and innovators that employ two or three people,” Sykes says. “We support the innovators to a point where large players feel confident in investing and taking the technologies to market.”

Only about 5 per cent of early-stage businesses go on to be successful, yet two-thirds of companies supported by the Carbon Trust flourish. This record reveals great experience, says Sykes: “We’ve looked at 3000 technologies from start-ups and universities over the past 10 years, and we can see those technologies with real potential.”